XRP's Undervaluation Amid Coinbase's 90% Reserve Reduction: A Catalyst for Institutional Adoption and ETF-Driven Demand

Coinbase's recent 90% reduction in XRP reserves has sparked intense debate about the token's valuation dynamics. According to a report by CoinCentral, the exchange's holdings plummeted from approximately 970 million XRP in June 2025 to just 99 million by September 2025, consolidating into six cold wallets XRP Supply on Coinbase Drops 90%, New Data Shows^[1]. This dramatic shift, while initially alarming, may signal a strategic reallocation of XRP into institutional custody and liquidity corridors, potentially reducing market selling pressure and stabilizing the asset's price.

Institutional Infrastructure and XRP's Transition to a Utility-Driven Asset

The reduction aligns with Coinbase's expanded partnership with BlackRock, which integrated XRP into institutional-grade platforms like Coinbase Prime and BlackRock's Aladdin XRP Supply on Coinbase Drops 90%, New Data Shows^[1]. This move reflects a broader industry trend: XRP is transitioning from speculative retail interest to a regulated, utility-driven investment product. Institutional adoption is further bolstered by Ripple's On-Demand Liquidity (ODL) service, which processed $1.3 trillion in cross-border transactions in Q2 2025, demonstrating XRP's real-world utility in global payments XRP Supply on Coinbase Drops 90%, New Data Shows^[1].

The XRP Ledger's December 2024 update, which slashed reserve requirements by 90%, also plays a critical role in this narrative. By allowing new users to fund wallets with just 1 XRP instead of 10, the update has lowered barriers to entry, fostering broader adoption and increasing the token's utility as a medium of exchange XRP Cuts Reserve Requirements by 90% to Allow Wallets with Lower Amounts^[3]. This technical innovation, combined with institutional infrastructure, positions XRP as a compelling candidate for mainstream adoption.

ETF-Driven Demand and Regulatory Clarity

The potential approval of a Spot XRP ETF in the United States has emerged as a key catalyst. Prediction markets like Polymarket now assign a 94% probability to such an ETF being approved by October 2025 XRP Supply on Coinbase Drops 90%, New Data Shows^[1]. If realized, this would unlock a flood of institutional and retail capital into XRP, mirroring the surge seen with Bitcoin and Ethereum ETFs. The SEC's resolution of Ripple's lawsuit in 2024 has already provided regulatory clarity, with institutional ownership of XRP rising to 10.6% of the total supply XRP Supply on Coinbase Drops 90%, New Data Shows^[1].

Coinbase's reserve reduction may also indicate anticipation of this regulatory shift. As stated by The Currency Analytics, the coordinated movement of XRP into institutional custody—evidenced by similar patterns at BitGo and Bitstamp—suggests a strategic buildup ahead of potential ETF launches Coinbase's XRP Holdings Drop Nearly 90% Over Three Months^[4]. This “quiet accumulation” by institutional players could create a supply imbalance, where demand outpaces available liquidity, further supporting XRP's price.

Market Implications and Undervaluation Thesis

Despite these tailwinds, XRP remains undervalued relative to its fundamentals. Its market capitalization of $183 billion XRP Supply on Coinbase Drops 90%, New Data Shows^[1] lags behind its utility in cross-border payments and growing institutional adoption. The reduction in exchange-held XRP—now concentrated in just six wallets—has tightened liquidity on platforms like Coinbase, which has fallen out of the top 10 exchanges for XRP holdings XRP Cuts Reserve Requirements by 90% to Allow Wallets with Lower Amounts^[3]. This scarcity, coupled with Ripple's escrow releases and corporate allocations, could drive upward price pressure if demand surges post-ETF approval.

However, caution persists. Some analysts, as noted by BitcoinEthereumNews, argue that Coinbase's reduction could reflect a defensive stance amid lingering regulatory uncertainties Coinbase's XRP Holdings Drop Nearly 90% Over Three Months^[4]. Yet, the broader trajectory—marked by XRP's integration into institutional infrastructure, regulatory clarity, and a 90% reserve requirement cut—points to a structural shift rather than a temporary correction.

Conclusion

XRP's undervaluation is a function of its underappreciated utility and the nascent phase of institutional adoption. The 90% reduction in Coinbase's reserves, far from signaling weakness, underscores a strategic reallocation into custody solutions and liquidity networks. With a potential ETF approval on the horizon and the XRP Ledger's accessibility enhancements, the token is poised to capture a larger share of the institutional market. For investors, this represents a unique opportunity to capitalize on an asset that is simultaneously a utility token, a speculative play, and a regulated investment vehicle.